choosing the right sales channel

Stephen N. Davis

“Partnering With Clients to Drive

Sustainable Profitable Growth”

Choosing the Right

Sales Channel

2000 - 2011 © CXO Advisory Group

What We’ll be Covering

Developing your channel strategy

• How to choose the right channels

Types of sales channels

• Capabilities & limitations

What it takes to succeed

Managing channel relationships

Key points to remember

We will not be talking

about online sales


Sales Channels – The Reality

“A product with better distribution will

always win over a product with poor

distribution or customer access”

It’s not fair. It’s not right.

But, it’s reality.


Common Sales Strategy Mistakes

Not having an

adequate profile of

customers



Confuse channel

partners with final

customers



Channels are not in

sync with end-user

targets



Thinking your

“value proposition”

is the same as theirs



Failure to consider

licensing or joint-

venture agreement



Insufficient channel

margins



Insufficient

marketing budget



Not aligning

marketing to the

sales channel



Channel conflict



Going to the channel

before you’re READY


Plan Your Entry into the Channel

“If you don’t know

where you’re going

you’ll probably

wind up

somewhere else”


Critical Questions You Must Answer

What is the customer profile?

Do I offer a whole product solution?

What is my average deal size?

How complex is my solution?

How long is my sales cycle?

What are my company’s Strengths and Weaknesses?

How much money is available for Marketing/Sales?

How and where do my competitors sell effectively?

What complimentary product sales opportunities exist?


You Need a Whole Product Offering

The

Product

Pre-Sales Support

Post-Sales Support


The Channel Marketing Plan

Program

Coverage model

Value proposition

Business rules

Sales model

Pricing

Sales Support

model

Customer Support

Model

Budget

Strategy

Goals

Target

Market

Product

Competition

Channels

• Roles

• Alignment

Execution

Media Campaign

Communication

Incentives

Education

Outsourcing


Have a Written Plan with Measurable

Objectives

Build a customer profile?

What channel partners should I have?

• Build a channel partner profile

• Link to end-user targets

• Fit with existing channels

• What role do they play?

• Influence

• Sales

• Support

• Technical

How do I choose them?

How do I measure them?

How do I generate business for them?

Do the financial requirements make sense for our company?


Creating Effective Budgets

A program without a budget is a wish

• Cancelled at any point

• Not credible to reseller

• Cannot be strategic or justified to management

• Costs cannot be measured or controlled

Must estimate costs of program design, implementation

and management

• Coverage, sales model, support model, value proposition

• Calculate as both cost of sales and return on investment


Types of Sales Channels

Direct field sales reps

Corporate resellers

Master or local

distributors

Integrators

Value-added resellers

Manufacturer’s agents

Brokers

Franchises

Telemarketers

Inbound telesales

agents

Internet sites

Extranets

e-Marketplaces

Direct Mail

OEM’s

Retail

Kiosk’s

Strategic alliances

Agents (consultants,

affiliates, etc.)


Channel Benefits/Risks

Control

Higher gross margins

Direct customer relationship

Necessary for complex sale

Harder to scale

Higher fixed costs

Less flexible – seasonal sales

Can scale quickly

Use established customer relationships

Fill product gaps

Companion selling opportunities

Local support

Increased demand generation

Offload financing risk

Ongoing investment in recruitment & training

Big margin sacrifice

Up front MDF investment

Loss of customer relationship & feedback

Fighting for mindshare

Quality of channel partner

Benefits Risks

Direct

Indirect


Computer Distribution Channels


What Do These Firms Have in Common?

http://www.amazon.com/exec/obidos/subst/home/home.html/ref=three_tab_gw/002-4494067-9732802

http://www.schwab.com/public/schwab/home/index.html?cmsid=P-979213&pg=P-1023548&lvl1=home&refid=P-1064133&refpid=P-997170

http://www.omahasteaks.com/

http://www.bowflex.com/index.asp

http://www.ditech.com/index.html


Is Your Buyer Package up to Snuff?

Marketing materials

Price lists

Outline of your marketing campaign – Demand Creation

Product samples - Packaging

COOP/MDF funds and campaigns

In-store merchandising

Prospect & customer correspondence

Sales training for their personnel

Sales support

End user training

End user support


Joint Venture/ OEM / Private Label

Quick penetration – less risk

Established market presence

Provides localization of product

Handles all marketing, sales, distribution &

support

Provides ongoing market analysis

Provides ongoing competitive analysis

Usually won't carry competing product

Tough sale – long sales cycle


Approaching a Potential Joint Venture/ Private Label Partner

Be Ready to Explain Key Product Advantages

Do Your Homework • Why should they be interested?

• Fills competitive hole

• Enhances existing product line

• Prevents having to compete against you

• You could develop market in your home country for their products

How easy it will be to work with you

Support you will give them • Technical

• Training


Key Issues Licensing Agreement

Specs & Deliverables

Acceptance

Grant of License

Terms

Payments

Bookkeeping Requirements

Ownership

Use of Trademarks

Training

Decision Making Authority

Marketing Obligations

List Price of Product

Performance Requirements

Warranties

Limitation of Liabilities

Development Support

Rights to Updates

Termination

Source Code Access


Distributors

Sells to other channel players within designated

area

Takes title to goods and is compensated by mark-up

upon sale

Sells suppliers goods to his own customers

No authority to act on your behalf

Maintains Inventory

Sells in original packaging

May or may not provide after sales services

Many products are taken on consignment basis


What Distributors Look For

Products with proven demand

Product's packaging, ease of use & install

Marketing budget

Quality tech & Customer support

Ability to scale up to demand

Financial stability

Training

Distributor staff time required

Only 1% - 2% of products presented get chosen


Manufacturers Agent/Commercial Agent

Alternative to own sales force

Both authorized to solicit orders in designated area

Receive salary or commission

Usually bear no credit risk

Maintains no inventory

Requires same support & training as internal salesforce

Carries several lines

References, References, References


Typical Rep Territories - USA


Typical Rep Territories - Canada


Source to Identify GOOD Reps

Customers and potential customers

Known GOOD Reps

Companies with complimentary products to yours

MANA (Manufacturers Agents National Association)

• Manaonline.org

ERA (Electronic Representatives Association)

• Era.org

AIM/R (Association of Independent

Manufacturers'/Representatives)

• aimr.net


Rep Agreement Caveats

Most rep agreements have commissions due on order

• Commissions should be paid ONLY AFTER YOU COLLECT

Commissions should be on NET Sales

• Sales MINUS returns and any upfront market development

funds paid to the retailer

Splitting commissions

• Between rep territories

Territory definition

National (House) accounts

Termination issues

Automatic renewal


What does a good Reseller look for

Product for their market

Ways to increase revenue via • Consulting

• Support

• Reduced cost of sale

Investment and commitment

Good business proposition

Training & technical support

Sale & marketing support

Territorial exclusivity

Price stability


VARs Choose Product On

Product Quality 87%

Order Fulfillment 55%

Profit Margins 45%

Price/Performance 45%

Commitment 43%

Technical Support 41%

Business Documentation 29%

Terms & Conditions 25%

Channel Conflict 21%

Sales Rep Assistance 17&

Sales Leads 17%

Co-op Advertising 6%

% VARs Considering Factor

Extremely Important

Source: VARBusiness


Manage Your Reseller Relationship

Be selective – resellers won’t

Reduce potential territorial conflicts

Distributors will not maintain your reseller relationship

• You have to do it directly

Segment your resellers

• That work on large accounts with your direct sales force

• Markets that resellers will be your salesforce

• Specialized vertical markets

Resources should be based on this segmentation

Set realistic sales targets and ramp up

Provide sales cycle specific marketing tools

Communicate regularly

Train, Train, Train


Cost of Market Entry Options

Retailer Mark-up, 50% - 200%+

5-10% MDF, Slotting Fees,

Beware Consignment sales

Agent/ Rep. Commission, 5%–30%, Wants

to be paid on order

Value Added Reseller

(VAR)

Margin, 20-40%, 5-10% MDF

Distributor (stocks product) Margin, 10%–50%, 2-5% MDF


Key to Efficient Channel Management

Strengthen ability of channel partners to deliver solutions

Train channel partners well & often - for free

Enhance communications

Treat them like they’re your own salesforce

Enable partners to sell complementary services aggressively

Deliver channel value with the web • Demand creation

• Quality leads

• Support

• Information

• Links

• Feedback


When Worlds Collide: Misalignment of Marketing & Sales

Marketing sales:

“We spend millions generating qualified

prospects and they fall into a black hole!”

Sales says:

“The collateral material is crap. It doesn’t help

me in the sales cycle and the so-called leads

they send us are a waste of my time.”


When Worlds Collide: Misalignment of Marketing & Sales

Company centric messaging doesn’t support sales effort

85% of marketing messages, collateral and sales tools go unused

Sales people spend 40-60 hours each month creating their own materials, responses, presentations

Only 10% of sales people present the “best answer” to a customer solution

Solution: Produce sales-cycle relevant tools

and collateral

Source: AMA


Manage Channel Conflict

Areas of channel conflict

• Multiple channels calling on same account

• Specify territories or vertical markets - segmentation

• Company selling directly to reseller accounts

• Specify company owned accounts - reserved

• Specify reseller owned accounts - reserved

• Compensate direct sales force on sales through resellers

• Have them work on accounts with key resellers

• Pricing not consistent across channels

• Get your pricing structures in line

Conflict can not be eliminated

Changing business objectives

Company politics


How the Channel Views Vendor Internet Plans


Key Points That Can Make a Difference

Have realistic expectations

Top management commitment

Focus, Focus, Focus

Long Term View

Clear understanding of end-user targets and their

alignment with channel partners

Reduce channel conflict by clearly defining roles

and responsibilities for each channel

Develop comprehensive business rules for

managing program processes


Key Points That Can Make a Difference

Take inventory of your partners

• Does the 80/20 rule apply?

• Build profiles based on successful partners

• Align internal resources based on contribution

Invest in your partners

• Marketing

• Training

• Support

• Web

Use the Internet to enhance partner sales

Review your channel strategy yearly

• Identifies potential destructive channel conflict

• Tune channel support programs


Questions


Driving Profitable Growth


Driving Profitable Growth

We help companies optimize business development and marketing; accelerate sales; and seize the most attractive growth opportunities.


The CXO Advisory Group

CXO Advisory Group is a strategic operations advisory

and management firm comprised of proven C-level

executives with both breadth and depth of experience.

CXO Advisory Group Team members have achieved

success in positions ranging from: President/CEO to

COO, and VPs of Sales, Marketing, Corporate

Development and Human Resources.

Has proven success in business development and in

building US sales and distribution channels


How Can CXO Help You?

Business Strategy Services

• Audit business practices and organization

• Evaluate product and pricing strategies

• Evaluate effectiveness of sales channel

• Assess effectiveness of existing sales and marketing

programs

Market Entry Program

• Analyze competitive landscape

• Market launch strategy and plan

• Channel strategy and programs

• Establish sales channels

• Generate sales and manage relationships

• Identify and develop strategic partnerships



Sales Channel Management

• Review and revise sales channel strategies

• Channel partner identification, prospecting and recruitment

• Eliminate channel conflict

• Channel contract development and negotiation

Interim Management Resources

• Interim CEO, COO, CMO, CSO

• Interim VP of Sales and Marketing

• Consultant on staff

• Launch team coaches



Venture Advisory Services

• Fine tune operations, business strategy and market entry

• Assist with due diligence

• Strategic business assessment of portfolio companies

Stephen Davis Interim COO/VP Sales & Marketing |

Business Consultant | Sales Channel and

Business Development Expert | Author &

Speaker

Contact Information:

“Partnering With Clients to Drive

Sustainable Profitable Growth”

Phone: (508) 528-7571 Email: [email protected] Website: www.cxoadvisorygroup.com Linkedin: www.linkedin.com/in/stephendavis Twitter: twitter.com/stephendaviscxo